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U.S. Debt To Reach Highest Level Since WW II

According to today’s USA Today, “The federal debt will represent 62% of the nation's economy by the end of this year, the highest percentage since just after World War II, according to a long-term budget outlook released today by the non-partisan Congressional Budget Office.”

“But the bigger long-term problem, according to CBO, remains Medicare.

“CBO Director Douglas Elmendorf wrote in a blog post explaining the new report that under current laws, "federal spending on major mandatory healthcare programs will grow from roughly 5 percent of GDP today to about 10 percent in 2035 and will continue to increase thereafter."

“Keeping current policies in place would almost certainly force lawmakers to make steep spending cuts and raise taxes, Elmendorf argued, unless changes to address the problems were made sooner rather than later.”

"In fact, CBO’s projections understate the severity of the long-term budget problem because they do not incorporate the significant negative effects that accumulating substantial amounts of additional federal debt would have on the economy:

Large budget deficits would reduce national saving, leading to higher interest rates, more borrowing from abroad, and less domestic investment -- which in turn would lower income growth in the United States.

Growing debt would also reduce lawmakers’ ability to respond to economic downturns and other challenges.

Over time, higher debt would increase the probability of a fiscal crisis in which investors would lose confidence in t he government’s ability to manage its budget, and the government would be forced to pay much more to borrow money.

“Keeping deficits and debt from growing to unsustainable levels would require raising revenues as a percentage of GDP significantly above past levels, reducing outlays sharply relative to CBO’s projections, or some combination of those approaches. Making such changes while economic activity remain well below their potential levels would probably slow the economic recover. However, the sooner that long-term changes to spending and revenues are agreed on, and the sooner they are carried out once the economic weakness ends, the smaller will be the damage to the economy from growing federal debt. Earlier action would require more sacrifices by earlier generations to benefit future generations, but it would also permit smaller or more gradual changes and would give people more time to adjust to them.”